EKTA SANITARY STORE,FOCAL POINT PATIALA vs. ACIT, CIRCLE, PATIALA, AAYAKAR BHAWAN

In the present appeal Assessee has raised the following grounds:

1. 1. That the Ld. CIT (A)-3, Coimbatore has erred in dismissing the appeal of the assessee and confirming the order of the Assessing Officer and wrongly treated the surrendered amount of Rs 50,00,000/- on account of business advances, building construction, stock and other misc discrepancies found during the course of survey as deemed income u/s 69 and to be taxed as per provisions of Section 115BBE of the Income Tax Act, 1961.

Briefly, the facts of the case are that a survey under section 133A was conducted at the business premises of the assessee on 31.05.2016. During the survey proceedings, the assessee had offered a surrender of Rs.50,00,000/- by way of a written letter and sworn statement. This amount comprised business advances, construction of godown, and minor discrepancies, all claimed to have arisen out of regular business transactions. The said income was recorded in the books of accounts and disclosed in the return of income as "business income." Taxes were duly paid thereon at normal rates.

During the assessment proceedings, the Ld. AO treated the surrendered amount as unexplained investments and expenditure under Sections 69 and 69C, on the ground that the source of the income had not been satisfactorily explained. The AO accordingly invoked Section 115BBE and taxed the surrendered amount at the enhanced rate applicable to deemed income.

Against the order of the Ld. AO the assessee went in appeal before the Ld. CIT(A). During the appellate proceedings, it was submitted that the surrendered amount pertained to transactions carried out in the normal course of business. The assessee asserted that it had no other source of income and that the entire surrender arose from business-related discrepancies such as stock differences, building construction, and advances traceable to business dealings. The income had been duly disclosed and accounted for in the audited financial statements. It was also argued that the amendment to Section 115BBE was prospective and not applicable to the year under consideration. 6. The Ld. CIT(A), however, rejected the submissions of the assessee and upheld the assessment order by relying on the judgment of the Hon’ble Punjab & Haryana High Court in Khushi Ram & Sons Foods (P) Ltd. and Kim Pharma Pvt. Ltd., holding that the assessee had failed to substantiate the source of surrendered income and thus the same was liable to be taxed under Section 115BBE.

Against the order of the Ld. CIT(A) the assessee is in appeal before us.

During the course of hearing the Ld. AR submitted that the Ld. CIT(A)-3, Coimbatore, erred in dismissing the appeal and confirming the Assessing Officer’s treatment of the surrendered amount of Rs. 50,00,000/-pertaining to business advances, construction, stock, and other items found during survey as unexplained income under Section 69 and taxing it under Section 115BBE. The amount was voluntarily disclosed as business income during the survey and duly offered to tax as such. There is no finding of any undisclosed or separate business activity. The Ld. CIT(A) failed to appreciate binding precedents, including DDK Spinning Mills (ITA No. 19/Chd/2023) and A.P. NIT Fab (ITA No. 732/Chd/2022), which hold that income declared as business income during survey must be accepted as such unless contradicted by cogent evidence. The assessee submits that treating the surrendered income as unexplained investment is incorrect both in fact and in law. Therefore, it is respectfully requested that the addition made under Section 69 be deleted and the income be rightly assessed as business income.

Per contra, the Ld. DR relied on the order of the lower authorities.

We have heard the rival contentions and perused the material available on record. It is an undisputed fact that the assessee is engaged in the trading of tiles and sanitary goods for several years, and the surrendered income was incorporated in the audited financial statements and declared in the return of income as part of the business income. The surrender had been made voluntarily during the survey, and the letter of surrender as well as the sworn statement clearly state that the income arose from business- related discrepancies and not from any outside source.

In the result, appeal of the assessee is allowed.